BNSF Railway Company v. USA

Filing

PUBLISHED OPINION FILED. [13-10014 Reversed and Remanded] Judge: PEH , Judge: PRO , Judge: SAH [13-10014]

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IN THE UNITED STATES COURT OF APPEALS
United States Court of Appeals
FOR THE FIFTH CIRCUIT
Fifth Circuit

FILED
January 15, 2015

No. 13-10014

Lyle W. Cayce
Clerk

BNSF RAILWAY COMPANY, formerly The Burlington Northern and Santa
Fe Railway Company, as successor by merger to Burlington Northern
Railroad Company and The Atchison Topeka and Santa Fe Railway
Company,
Plaintiff – Appellee

v.
UNITED STATES OF AMERICA,

Defendant – Appellant

Appeal from the United States District Court
for the Northern District of Texas
Before HIGGINBOTHAM, OWEN, and HIGGINSON, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
ON PETITION FOR REHEARING
Treating the petition for rehearing en banc as a petition for panel
rehearing, the petition for rehearing is GRANTED.

We WITHDRAW our

earlier opinion, BNSF Railway Company v. United States, 1 in its entirety, and
SUBSTITUTE the following:

1

745 F.3d 774 (5th Cir. 2014).

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BNSF Railway Company (“BNSF”) filed suit seeking refunds of certain
taxes that it, and its predecessor companies, paid pursuant to the Railroad
Retirement Tax Act (“RRTA”). BNSF claimed that it overpaid when it included
(i) Non-Qualified Stock Options (“NQSO”), and (ii) certain moving expenses as
taxable compensation.

The parties stipulated to the facts and, on cross-

motions for summary judgment, the district court granted summary judgment
in favor of BNSF on all its refund claims. We REVERSE.
I.
BNSF is a rail carrier 2 that operates an international railroad system
consisting of approximately 32,000 miles of rail throughout the Western
United States and Canada. BNSF was formed by the 1996 merger of The
Atchison Topeka and Santa Fe Railway Company with the Burlington
Northern Railroad Company. 3 At issue in this case are (i) Burlington Northern
Railroad Company’s 1993, 1994, and 1995 tax years; (ii) The Atchison Topeka
and Santa Fe Railway Company’s 1994 and 1995 tax years; and, (iii) BNSF’s
1996, 1997, and 1998 tax years.
As a rail carrier, BNSF and its employees are subject to the Railroad
Retirement Tax Act (“RRTA”). 4 BNSF now seeks a refund of the employer and
employee portions of taxes paid on the exercise of NQSOs and certain moving
expenses.
A.
During the tax years at issue, BNSF offered salaried employees and
executives a combination of Incentive Stock Options (“ISO”) 5 and NQSOs. The

As defined by Part I of the Interstate Commerce Act, 49 U.S.C. § 3(a) and 26 U.S.C.
§ 3231(g).
3 The companies are collectively referred to as BNSF.
4 26 U.S.C. §§ 3201 et seq.
5 The taxation of the ISOs is not at issue. An employee does not recognize income on
the grant or exercise of an ISO. When the stock acquired by the exercise of the ISO is disposed
of, the employee must recognize capital gain, as measured by the difference between the
2

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stated purpose of the stock option plans was to provide employees with a
competitive compensation package. 6 At the time the stock option plans were
adopted, BNSF paid its employees and executives salaries that were below
industry average, but because of the stock option plans, provided an overall
compensation package that was above industry average. 7 Each year, BNSF’s
Board of Directors determined the number of stock options to grant. 8 Once the
number was determined, BNSF awarded stock options in part as compensation
for services rendered by employees and in part as an award for job
performance. 9 These options were then awarded as either ISOs or NQSOs. 10
Additionally, BNSF’s Board of Directors determined the final deadline for
exercising the options and the vesting period for each option grant. 11
When an employee exercised a NQSO, the employee would pay the price
for the share that was the market price on the day the option was granted (the
“strike price”). 12 Approximately 90-95% of the time, the employee would then
sell the share at the same time, such that the employee would only receive the
difference between the strike price and the exercise price. 13 Alternatively, the
employee could keep the stocks, either by paying the broker the strike price
when executing the option or by selling enough stock to cover the strike price
and taxes, and then keeping the remaining shares. 14

strike price and the disposition price. See 26 U.S.C. § 421. To qualify for favorable tax
treatment, either (i) the option must be held for at least two years from the date of the grant
or (ii) the stock must be held for at least one year from the date of exercise. See id. at §
422(a)(1). A premature exercise or sale is a “disqualifying disposition” and any income from
such a disposition is treated as ordinary income. See id. at § 421(b).
6 First Stipulation of Fact, ¶ 68.
7 Id. at ¶ 69.
8 Id. at ¶ 70.
9 Id. at ¶ 71-72.
10 Id. at ¶ 73.
11 Id. at ¶ 75.
12 Id.
13 Id. at ¶ 11.
14 R. 995–96.

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NQSOs were exercised in one of two ways: (i) non-executive employees
exercised their NQSOs through BNSF’s transfer agent, 15 and (ii) executive
employees were permitted to use their private brokers to exercise their
NQSOs. 16

Non-executive employees would either fax or hand-deliver an

exercise notification sheet to BNSF’s compensation department, who would
then authorize BNSF’s transfer agent to exercise the option. 17 The transfer
agent would then either forward the stock certificate to the employee or
disburse the net gain amount on the sale of the stock. For executives, the
transfer agent would directly transfer the purchased shares to the executive’s
private broker. 18
BNSF did not directly pay cash or send the stock certificate to the
employee, but it did record all transaction information into a stock option
tracking system. BNSF would calculate the amount of RRTA taxes due and
would inform the transfer agent of the amount of tax to be withheld. 19
During the years at issue, 3,192 BNSF employees exercised NQSOs,
representing $348,805,183.03 total spread on exercise. 20

BNSF and its

employees paid a total of $16,432,583.01 in RRTA taxes on exercised NQSOs. 21
B.
From 1994 to 1996, many BNSF employees were required to relocate as
a result of the consolidation and restructuring of operations, the merger, and
employee promotions and transfers. 22 Whenever BNSF asked an employee to
move, it would pay a substantial portion of the moving expenses. 23 In total,
R. 952 n3.
R. 988–89.
17 R. 989.
18 R. 990.
19 Id.
20 Id.
21 R. 987.
22 R. 991.
23 R. 971.
15
16

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BNSF paid approximately $135,000,000 in employee moving expenses during
the period at issue. 24
These payments were made pursuant to a written policy in BNSF’s
relocation manuals for non-union employees and pursuant to collective
bargaining agreements for union employees. 25 Typically, BNSF paid moving
expenses in one of two ways: (i) by direct payment to the service providers, or
(ii) by a lump sum payment to employees, who could generally keep any excess
payment over expenses actually incurred and who were not required to provide
substantiation. 26 When BNSF paid a lump sum, it typically did so through a
third-party agent hired by BNSF to administer the moving-expenses benefit
program. 27 The lump sum payments were calculated by using a benchmark
based on average reimbursement amounts paid by similarly situated
companies. Typically, the lump sum payment was $20,000 for homeowners
and $10,000 for non-homeowners. 28

Additionally, BNSF generally paid

employees a ‘tax gross-up’ to cover additional tax due on these moving expense
benefits. 29
BNSF considered certain moving expenses to be properly excluded
moving expense payments and reimbursements under 26 U.S.C. § 217. BNSF
did not withhold federal income tax or RRTA employment tax on these
expenses, and accordingly, these expenses are not at issue. 30 BNSF provided
a number of other moving expense benefits that were not excludable under §
217, including: professional relocation company expenses, babysitting
expenses, car rental expenses, home sale costs (including appraisals, title

R. 976.
R. 991.
26 Stipulations of Fact, ¶ 80; Plt.’s Mot. Summ. J. Exh. 112.
27 Id.
28 Def.’s Mot. Summ. J., Exh. J.
29 Id.
30 Stipulations of Fact, ¶ 78.
24
25

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searches, and inspections), meals, pest extermination, pet relocation services,
personal property storage, and reimbursement for lease cancellation fees. 31
BNSF claims that these expenses were not provided as compensation for
employees’ services to BNSF, but instead were provided as a means of
retaining qualified and knowledgeable employees. 32 In short, BNSF claims
that without these moving expense benefits, employees would have been
unable to relocate and thereby forced to resign. Accordingly, BNSF claims that
these benefits were paid to stay competitive.
C.
From 1993 to 1998, BNSF, and its predecessors-in-interest, filed refund
claims for both the employer and employee portions of the RRTA tax paid on
NQSOs exercised during that time period. 33 Additionally, BNSF filed formal
refund claims for the employer portion of tax paid on moving expenses for 1994
through 1998, 34 as well as the employee portion for 1994, 1995, and 1998. 35
The Internal Revenue Service (“IRS”) granted the refund claims for the
employer portion of the RRTA tax paid on moving expenses for 1996 through
1998, and although the IRS now claims those refunds were in error, the IRS
does not seek recovery of those refunds as the relevant statute of limitations
has expired.
With respect to the employee portions of tax paid on moving expenses for
1996 and 1997, BNSF did not file a formal refund claim. 36 When BNSF
amended its federal railroad retirement tax returns (Form CT-1) for tax years
1996 and 1997, it included an attachment stating that BNSF “is not requesting

Id. at ¶ 80 (identifying 28 distinct moving expenses that BNSF paid).
R. 992.
33 R. 998.
34 R. 949–50.
35 Id.
36 BNSF recently filed formal refund claims for these taxes on September 6, 2013. See
Appellee’s Rule 28.4 Letter (Sept. 6, 2013).
31
32

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refund of the employee with this Form CT-1 . . . [h]owever, [BNSF] is
separately filing a claim for refund of the employee taxes over-collected with
respect to the above-described payments on a Form 843.” 37 Yet, BNSF never
filed a formal claim for refund of these employee taxes on a Form 843 for either
1996 or 1997 prior to the filing of this suit.
On June 30, 2011, BNSF brought this suit in the district court, seeking
refunds of the employer and employee portions of RRTA tax paid on NQSOs,
the employer portion of RRTA tax paid on moving expenses benefits in 1994
and 1995, and the employee portion of RRTA tax paid on moving expenses in
1996 through 1998. On cross-motions for summary judgment, the district court
granted summary judgment in favor of BNSF. In so doing, the district court
held that NQSOs are not compensation for purposes of the RRTA, and that
moving expenses are properly excluded from income under the RRTA.
Additionally, the district court held that BNSF provided sufficient notice to the
IRS to warrant jurisdiction over the refund claims for employee taxes paid on
moving expenses in 1996 and 1997.
II.
“We review a district court’s grant of summary judgment de novo and
apply the same standards as the district court.” 38 Accordingly, “[s]ummary
judgment is proper if the pleadings and evidence show there is no genuine issue
of material fact and the moving party is entitled to judgment as a matter of
law.” 39
III.
A.

R. 585, 591.
Hernandez v. Yellow Trans., Inc., 670 F.3d 644, 650 (5th Cir. 2012) (citing Adams v.
Travelers Indem. Co. of Conn., 465 F.3d 156, 163 (5th Cir. 2006)).
39 Id. (citing Rule 56(a), Fed.R.Civ.P.).
37
38

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Our resolution of the NQSO issue is informed by a brief history of the
RRTA. Unlike most American employers and employees, rail carriers and
their employees are subject to the RRTA instead of the Federal Insurance
Contributions Act 40 (“FICA”). By the 1920s, nearly 80% of railroad workers
were employed by rail carriers offering pensions. 41 These employer-provided
pension plans were rife with problems such as inadequate funding, capricious
terminations, and limited benefits for disabled employees. 42

Because the

planned social security system would not provide benefits for work before 1937,
and was not planned to pay benefits for several years thereafter, Congress
intervened in the railroad retirement system in the 1930s by enacting the
Railroad Retirement Act 43 (“RRA”) and the RRTA. 44
Like FICA, the RRTA imposes a tax on both employers and employees to
fund the RRA’s retirement and disability benefits. 45 Unlike FICA, there are
two tiers of taxes and benefits under the RRTA and RRA. Tier I provides
benefits and taxes in a manner almost identical to FICA and, in essence, is the
social security analog for railroad workers; indeed, the Tier I rates are
statutorily linked to FICA. 46 Tier II functions like a private pension plan and
is essentially an extension of the system of railroad pension plans that then
existed when the RRA and RRTA were enacted in the 1930s. 47 The Tier II
benefits are tied to an employee’s “earnings and career service.” 48

28 U.S.C. §§ 3101 et seq.
See Kevin Whitman, An Overview of the Railroad Retirement Program, 68 Soc. Sec.
Bulletin 2 (2008).
42 Id.
43 45 U.S.C. §§ 231 et seq.
44 See Whitman, supra n.41.
45 See, e.g., Std. Office Bldg. Corp. v. United States, 819 F.2d 1371, 1373 (7th Cir.
1987).
46 See Hisquierdo v. Hisquierdo, 439 U.S. 572, 575 (1979).
47 Id. at 574.
48 Id.
40
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Under Tier I, the RRTA imposes “on the income of each employee a tax
equal to the applicable percentage of the compensation received during any
calendar year by such employee for services rendered by such employee.” 49
Compensation is then defined as “any form of money remuneration paid to an
individual for services rendered as an employee to one or more employers,”
subject to certain enumerated exceptions. 50

In the applicable Treasury

Regulation, the IRS has defined RRTA “compensation” as having “the same
meaning as the term wages in section 3121(A) . . . except as specifically limited
by the [RRTA.]” 51

The parties sharply dispute whether NQSOs are

“compensation” as used in the RRTA.
The Government argues that the term “compensation” and the phrase
“any form of money remuneration” as used in the RRTA is inherently
ambiguous.

Thus, the Government argues that the Treasury Regulation

definition for “compensation”, that is, that it should have the same meaning as
“wages” under FICA, should be awarded Chevron 52 deference.

The

Government notes that this definition supports the remedial purposes of the
RRTA, and avoids rendering superfluous statutory exclusions from RRTA
compensation. Thus, in the Government’s view, NQSOs are “compensation”
because they qualify as “wages” under FICA.
In contrast, BNSF argues that “compensation” and “any form of money
remuneration” are not ambiguous. BNSF explains that the plain language
meaning of “any form of money remuneration” is any form of “payment or
compensation in cash or other medium of exchange authorized by
governmental authorities.” 53 BNSF thus argues that NQSOs cannot qualify

26 U.S.C. § 3201(a).
26 U.S.C. § 3231(e)(1).
51 26 C.F.R. § 31.3231(e)-1(a)(1).
52 Chevron USA, Inc. v. Natural Resources Def. Council, Inc., 467 U.S. 837 (1983).
53 Br. of Appellee at 21.
49
50

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as money because they are not cash or other medium of exchange authorized
by governmental authorities, and therefore, are not “compensation” under the
RRTA.
To this end, the district court held that NQSOs are not “compensation”
under the RRTA. The district court explained that:
The common accepted meaning of the words ‘any form of money
remuneration’ could reasonably be thought to include cash
(whether coin or paper money or a combination of the two), or a
paycheck drawn on an account of the employer at a financial
institution, or a wire transfer of pay check funds to the employee’s
bank account, or script issued to an employee by an employer for
use as the employer’s company store. . . . There is no ‘ordinary,
contemporary, common meaning’ of the words ‘money
remuneration’ that would include receipt by such an employee of
an NQSO or the financial gain realized by such an employee from
a later exercise of the option. 54
B.
We disagree. In answering the question of what “compensation” and
“any form of money remuneration” mean, we start with the familiar two-step
framework set out in Chevron v. National Resources Defense Council, Inc. 55
First we must ask “whether Congress has directly spoken to the precise
question at issue. If the intent of Congress is clear, that is the end of the
matter; for the court, as well as the agency, must give effect to the
unambiguous expressed intent of Congress.” 56 In evaluating the clarity of
Congressional direction, we apply the “traditional tools of statutory
interpretation,” 57 including “text, structure, purpose, and legislative history.” 58
R. 998-99.
467 U.S. 837 (1984). In Mayo Foundation for Medical Education and Research v.
United States, 131 S. Ct. 704 (2011), the Supreme Court made clear that IRS regulations
receive Chevron deference. Id. at 711-14.
56 Id. at 842-43.
57 Id. at 843 n.9.
58 Citizens Coal Council v. Norton, 330 F.3d 478, 481 (D.C. Cir. 2003) (quoting Pharm.
Research & Mfrs. Of Am. v. Thompson, 251 F.3d 219, 224 (D.C. Cir. 2001)); see also City of
54
55

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Second, if we “determine[] Congress has not directly addressed the precise
question at issue,” we “do[] not simply impose [our] own construction on the
statute.” 59 Rather, we must decide “whether the agency’s answer is based on
a permissible construction of the statute.” 60
1.
In applying the traditional tools of statutory interpretation to the phrase
“any form of money remuneration,” 61 we bear in mind the Supreme Court’s
admonition that we cannot interpret these words in isolation, but “must
interpret the statute as a symmetrical and coherent regulatory scheme.” 62 We
start with the text. The phrase “money remuneration” does not appear to us
to have an ordinary, common-sense definition.

Moreover, while the word

“remuneration” is broad, the modifier “money” must narrow it to some degree
– the question is how far did Congress go in circumscribing the term? Here, as
the Supreme Court and our own court have recognized, dictionary definitions
can be helpful in defining the parameters of statutory language. 63
In using dictionaries to inform our Chevron analysis we must be
cautious. As our en banc court held in Mississippi Poultry Association, Inc. v.
Madigan, we have rejected a “per se ‘dictionary rule,’” where “[if] a dictionary
(or dictionaries) contain more than one definition that makes some sense under

Arlington, Tex. v. F.C.C., 133 S. Ct. 1863, 1876 (Breyer, J., concurring in part and concurring
in the judgment) (“[T]he statute’s text, its context, the structure of the statutory scheme, and
canons of textual construction are relevant in determining whether a statute is ambiguous.”).
59 Chevron, 467 U.S. at 843.
60 Id.
61 26 U.S.C. § 3231(e)(1).
62 Food & Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133
(2000).
63 See, e.g., Mayo Found. for Med. Educ. & Res. v. United States, 131 S. Ct. 704, 711
(2011) (recognizing that dictionary definitions can be employed at Chevron step one);
Rapanos v. United States, 547 U.S. 715, 732-33 (2006); Tex. Sav. & Comm. Bankers Ass’n v.
Fed. Housing Fin. Bd., 201 F.3d 551, 555 (5th Cir. 2000) (relying on a dictionary definition to
determine whether a statute is ambiguous at Chevron step one).

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the statute, then it is ambiguous.” 64 We recognized then, and reaffirm now,
that:
[S]uch an approach would also effect a radical shift in power from
Congress to administrative agencies, as follows: For the agency
interpretation to trump Congress, the agency must be entitled to
deference; for the agency to be entitled to deference, there must be
ambiguity; if every word for which secondary and tertiary
meanings are to be found in some English language dictionary is
deemed to be ambiguous for Chevron purposes, essentially every
non-technical word in every statute would have the potential of
being ambiguous; consequently, the agency's choice of definition
would trump Congress' word usage every time—subject only to the
vague caveat that the agency's choice “makes some sense” under
the statute. 65
Nonetheless, so long as dictionary definitions are used only to illuminate true
ambiguity, rather than to create ambiguity where no honest disagreement
about meaning exists, such definitions may be employed.
With that qualifier in place, we recognize that dictionary definitions of
“money” are less than helpful. On the one hand, most dictionaries offer narrow
definitions that confine “money” to “a medium of exchange,” 66 and define
“medium of exchange” as “anything generally accepted as payment in a
transaction and recognized as a standard of value.” 67 On the other hand, other
dictionaries define “money” more broadly as “assets or compensation in the
form [of] or readily convertible to cash,” 68 “[a]ssets that can easily be converted

31 F.3d 293, 307 (5th Cir. 1994) (en banc).
Id.
66 See, e.g., Merriam-Webster's Collegiate Dictionary 750 (10th ed. 1994) (defining
“money” as “something generally accepted as a medium of exchange, measure of value, or a
means of payment: as a: officially coined or stamped metal currency”); Black's Law Dictionary
1096 (9th ed. 2009) (defining “money” as a “medium of exchange currently authorized or
adopted by a government as part of its currency”).
67 Black’s Law Dictionary 1072 (9th ed. 2009).
68 Webster’s Third New International Dictionary 1458 (1993).
64
65

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to cash,” 69 and “[c]apital that is invested or traded as a commodity.” 70 And
when “money” is used as an adjective, rather than as a noun, it may carry a
different meaning—such as, “of or pertaining to capital or finance” 71—or it may
simply be superfluous. 72 While these definitions are not so conclusive as to
resolve the issue, we recognize that they do suggest multiple meanings of the
word “money.” Nor are contemporary sources, of which we have been able to
find only a few which have used the phrase “money remuneration,”
determinative.

Some suggest that money remuneration refers to cash

payments. 73 Others, however, use money remuneration more generally, to
refer to forms of compensation other than in-kind benefits. 74
Second, we turn to the structure of the statute. Here, section 3231(e)(1),
which defines “compensation” as “any form of money remuneration,”
specifically excludes four classes of payments from falling within the definition
of compensation: (1) health insurance payments made by or on behalf of the

Black’s Law Dictionary (9th ed. 2009).
Id.
71 Rand House Webster’s Unabridged Dictionary 1241 (2d ed. 2001).
72 See Bryan Garner, A Dictionary of Modern Legal Usage 571 (2d ed. 1995).
73 See, e.g., Termination of Contracts of Employment of Salaried Employees and
Technical Staff, 35 Int'l Lab. Rev. 803, 819 (1937) (“[T]he words ‘remuneration’ and ‘salary’
are taken to mean the total income of the employee, including, in addition to the money
remuneration, any other advantages and additional payments, namely, tips, percentages,
discounts, premiums, free dwellings, and other similar benefits.”).
74 See, e.g., Alexander Baykov, The Development of the Soviet Economic System: An
Essay on the Experience of Planning in the U.S.S.R., at 43 (1947) (“As the purchasing power
of money declined very rapidly, money remuneration began to play a much less important
part in the total ‘wages’ of workers than the supply of bare necessities in kind.”); Salaries of
School-Teachers in Colonial America, 28 Monthly Lab. Rev. 27, 31 (1929) (“Besides the money
remuneration, the districts boarded the teachers.”); Employment and Unemployment, 19
Monthly Labor Review 146, 174 (1924) (“If the agent is furnished subsistence, the cost thereof
is deducted from his money remuneration.”); see also, 2 Wisc. Stat. 2401 (E.E. Brossard, ed.,
1923) (“Where an employee of the county receives board and maintenance in addition to
money remuneration, the value of such board and maintenance forms part of his earnings
and should be deducted from the amount of his exemptions . . . .”).
69
70

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employer, 75 (2) tips, (3) “an amount paid specifically . . . for travelling or other
bona fide and necessary expenses,” 76 (4) other remuneration which would not
be treated as wages under 26 U.S.C. § 3121(a)(5), a section of FICA which
excludes from wages a defined list of “payment[s] made to, or on behalf of, an
employee or his beneficiary.” 77

Given this structure, the statutory

interpretation canon of noscitur a sociis is helpful. This canon recognizes that
“an ambiguous term may be given more precise context by the neighboring
words with which it is associated.” 78 In this context, the four excluded
categories provide insight into the meaning of “any form of money
remuneration”: for the four terms must be of the sort that would have fallen
within the bounds of the statutory definition of “money remuneration,” had
Congress not explicitly excluded them. Here, the statute refers repeatedly in
those exceptions to “payments –a more expansive term than currency or cash,
which suggests in turn that “money remuneration” should be interpreted
broadly. 79

26 U.S.C. § 3231(e)(1)(i) (“[T]he amount of any payment (including any amount paid
by an employer for insurance or annuities, or into a fund, to provide for any such payment)
made to, or on behalf of, an employee or any of his dependents under a plan or system
established by an employer which makes provision for his employees generally (or for his
employees generally and their dependents) or for a class or classes of his employees (or for a
class or classes of his employees and their dependents), on account of sickness or accident
disability or medical or hospitalization expenses in connection with sickness or accident
disability or death, except that this clause does not apply to a payment for group-term life
insurance to the extent that such payment is includible in the gross income of the employee.”).
76 Id. § 3231(e)(1)(iii).
77 See id. § 3231(e)(1)(iv) (excluding “any remuneration which would not (if chapter 21
applied to such remuneration) be treated as wages (as defined in section 3121(a)) by reason
of section 3121(a)(5).”) Section 3121(a)(5) excludes from compensation “any payment made
to, or on behalf of, any employee or his beneficiary,” including trust payments, annuity
payments, certain pensions, exempt government deferred compensation plan, and several
other similar compensation metrics.
78 United States v. Stevens, 559 U.S. 460, 474 (2010) (internal quotation marks
omitted).
79 In United States v. Quality Stores, Inc., 134 S. Ct. 1395, 1400 (2014), the Supreme
Court analyzed the scope of FICA’s “wages” definition by using statutory exceptions. See id.
75

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Similarly, section 3231(e) contains a number of more general exclusions
from “compensation,” many of which mention non-cash benefits. For example:
section 3231(e)(12) excludes ISOs from compensation, section 3231(e)(5)
excludes non-cash employee achievement awards from compensation, and
section 3231(e)(9) excludes the value of meals and lodgings provided to
employees from compensation. In interpreting this section, we are bound by
the canon that we ought not “interpret[] any statutory provision in a manner
that would render another provision superfluous.” 80 Given this canon, reading
“money remuneration” as equivalent to cash payment, as BNSF posits, would
render these non-cash exceptions to compensation meaningless.
Third, we look to the purpose of the RRTA.

To begin, it is well-

established that the RRTA and FICA are parallel statutes, and courts often
look to FICA when interpreting the RRTA. 81 In general, under “the in pari
materia canon of statutory interpretation, statutes addressing the same
subject matter generally should be read as if they were one law.” 82 Here, FICA
uses an expansive definition of wages, defined as “all remuneration for
employment, including the cash value of all remuneration (including benefits)
paid in any medium other than cash.” 83 Given the similarities between the
statutes, there is an argument that we ought read “compensation” in the RRTA

(“That exception would be unnecessary were severance payments in general not within
FICA’s definition of ‘wages.’”).
80 Bilski v. Kappos, 561 U.S. 593, 607-08 (2010).
81 See, e.g., North Dakota State Univ. v. United States, 255 F.3d 599, 604 (8th Cir.
2001) (noting that the RRTA is “the equivalent of FICA for railroad employees”); Montana
Rail Link, Inc. v. United States, 76 F.3d 991, 993 (9th Cir. 1996) (noting that the RRTA
“served as the functional equivalent” of social security “for railroad employers”); Chicago
Milwaukee Corp. v. United States, 40 F.3d 373, 374 (Fed. Cir. 1994) (noting that the RRTA is
similar to FICA); Std. Office Bldg. Corp., 819 F.2d at 1373 (RRTA “is to the railroad industry
what the Social Security Act is to other industries”).
82 Wachovia Bank v. Schmidt, 546 U.S. 303, 315-16 (2006) (internal quotation marks
and citation omitted).
83 26 U.S.C. § 3121(a).

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as generally commensurate with this definition. Moreover, as the Supreme
Court has recently reaffirmed, we must broadly interpreted “compensation” in
the FICA context, in part to accomplish the remedial purpose of the statute, 84
suggesting we ought do the same here. This is far from an inevitable read,
however: we are equally bound by the canon that “[s]tatutory definitions
control the meaning of statutory words,” 85 and given that the two statutes do
use different ways of defining “compensation,” this could indicate that we
ought read RRTA to have a different, and narrower, definition of compensation
than FICA. 86 Nonetheless, that the purpose of the statute supports multiple
interpretations does suggest the provision’s ambiguity.
Finally, we turn to legislative history. 87 The original 1934 Railroad
Retirement Act used the term “compensation,” without further definition. 88
When that act was declared unconstitutional, Congress separated the taxing
and benefit statutes, and the 1935 iteration of the taxing statute 89 defined
“compensation” as “any form of money remuneration for active service,
received by an employee from a carrier, including salaries and commissions,
but shall not include free transportation[.]” 90 The use of the phrase “any form
of” and the specific exclusion of free transportation in this iteration suggests
that Congress understood “money remuneration” to encompass non-cash

See, e.g., United States v. Quality Stores, Inc., 134 S. Ct. 1395, 1399-1400 (2014);
Social Sec. Bd. v. Nierotko, 327 U.S. 358, 364 (1964).
85 Burgess v. United States, 533 U.S. 124, 129 (2008).
86 There is also the general canon that “different words within the same statute
should, if possible, be given different meanings.” Firstar Bank, N.A. v. Faul, 253 F.3d 982,
991 (7th Cir. 2001). This canon would also point toward different meanings, but given that
we are comparing two different statutes, this principle is of less certain applicability.
87 We recognize that the Supreme Court has spoken with skepticism about the use of
legislative history, especially where, as here, it can lend itself to multiple meanings. See, e.g.,
Exxon Mobile Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 568 (2005) (“[L]egislative history
is itself often murky, ambiguous, and contradictory.”).
88 48 Stat. 1283 (1934).
89 49 Stat. 974 (1935).
90 Id. at § 1(d).
84

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benefits. Counseling against that conclusion is the fact that at the time the
RRTA was enacted existing railroad pension plans were based on an
employee’s cash compensation only, rather than on other, broader types of
compensation, despite the fact that some railroad companies apparently
offered stock-option benefits. 91 Given this tangled past, the best we can say is
that legislative history does not decide the issue.
In light of the indeterminate text, structure, purpose, and legislative
history of this statutory provision, we cannot conclude the Congress has
“spoken clearly” as to the meaning of “money remuneration.” 92

We must

proceed to Chevron’s second step.
2.
At Chevron step two we ask whether the IRS’s definition “is based on a
permissible construction of the statute.” 93 When answering that question, we
must remember the limitations of our task: “The court need not conclude that
the agency construction was the only one it permissibly could have adopted to
uphold the construction, or even the reading the court would have reached if
the question initially had arisen in a judicial proceeding.” 94
Treasury

Regulation

§

31.3231(e)-1

provides

that

the

“term

compensation [as is relevant for the RRTA] has the same meaning as the term
wages in section 3121(a) . . . except as specifically limited by the [RRTA.]” 95
Section 3121 provides that the term “‘wages’ means all remuneration for
employment, including the cash value of all remuneration (including benefits)

See, e.g., Murray W. Latimer, Industrial Pension Systems in the United States and
Canada 20-21, 30-31, 106-108 (1933 ed.); Nat’l Indus. Conference Bd., Studies in Industrial
Relations: Employee Stock Purchase Plans 18-22 (1928).
92 City of Arlington, Tex. v. F.C.C., 133 S. Ct. 1863, 1875 (2013) (Breyer, J., concurring
in part and concurring in the judgment).
93 Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843 (1984).
94 Id. at 843 n.11.
95 26 C.F.R. § 31.3231(e)-1.
91

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paid in any medium other than cash[.]” 96 We conclude this interpretation is
reasonable.

First, as discussed above, the statutory term “money

remuneration” does not, as a textual matter, exclude the broader definition of
compensation put forth by the regulation. Second, the structure of the statute
supports the regulatory interpretation: as discussed above, section 3231
excludes from the definition many examples of non-cash compensation,
including, as is particularly relevant for these purposes, “qualified stock
options.” 97 If “money remuneration” was narrowly defined, these provisions
would be rendered redundant.
accommodates

each

of

section

The IRS’s regulatory action, which
3231(e)’s

enumerated

exceptions,

is

reasonable. 98 Moreover, this analytical approach–and conclusion–is consistent
with the Supreme Court’s recent decision in United States v. Quality Stores,
Inc., where the Court, interpreting FICA’s definition of “wages,” looked to the
surrounding exceptions to define the scope of the word. 99
Next, the IRS’s decision to interpret “compensation” in RRTA
commensurate with FICA finds comfort in the “elementary principle of
statutory construction that similar language in similar statutes should be
interpreted similarly.” 100 As the Eleventh Circuit stated, “it is difficult to
envision an act that more closely resembles [FICA] than does the [RRTA].” 101
While we recognize that both statutes use somewhat different formulations of

26 U.S.C. § 3121(a).
Id. § 3231(e)(12).
98 We recognize that there is an argument that this interpretation would render the
“money” in “money remuneration” superfluous, at least if a narrow dictionary definition of
money is used. However, BNSF’s proposed definition would render many of the section
3131(e) exceptions superfluous, and given these competing, imperfect constructions, we
cannot say that the agency’s interpretative choice is not reasonable, especially in light of the
multiple ways in which “money remuneration” can be interpreted.
99 134 S. Ct. 1395, 1400 (2014).
100 United States v. Sioux, 362 F.3d 1241, 1246 (9th Cir. 2004) (citing Northcross v.
Bd. of Educ. Memphis City Schools, 412 U.S. 427, 428 (1973)).
101 Duckworth v. Allianz Life Ins. Co. of N. Am., 706 F.3d 1338, 1344 (11th Cir. 2013).
96
97

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the word “compensation,” the decision to interpret them together–which we
have concluded the language of the statute allows–is not unreasonable.
Finally, we address one issue raised by the district court and brought to
our attention again by BNSF. The IRS regulation notes that compensation
“has the same meaning as the term wages in [FICA] . . . except as specifically
limited by the [RRTA].” 102 The district court concluded that the term “money
remuneration” represented a “controlling special limitation.” 103 We cannot
agree. As discussed above, we believe “money remuneration” is an ambiguous
general term, and one which need not be understood as a special limitation,
especially in light of section 3231’s careful listing of twelve categories of specific
exceptions. 104
We hold that section 31.3231(e)-1’s definition of “compensation” is a
reasonable definition and thus NQSOs are properly taxed as compensation
under the RRTA.
IV.
A.
We next turn to whether the claimed moving expenses are properly
excluded from compensation under the RRTA.

We begin with the

Government’s argument that BNSF has failed to perfect its refund claims for
the employee tax paid on moving-expense benefits in 1996 and 1997. The
Government first argues that BNSF’s alleged informal claims for these years
do not qualify under the informal claim doctrine as informal claims, and second
argues that BNSF’s failure to perfect the refund claims prior to filing suit
requires dismissal of these refund claims.

26 C.F.R. § 31.3231(e)-1(a)(1).
BNSF Ry. Co. v. United States, 904 F. Supp. 604, 614 (N.D. Tex. 2012).
104 See 26 U.S.C. § 3231(e)(1)-(12).
102
103

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We agree. 26 U.S.C. § 7422(a) provides a limited waiver of sovereign
immunity that permits taxpayers to file suits seeking refunds. Section 7422(a)
provides that “[n]o suit shall be maintained in any court for the recovery of any
internal revenue tax alleged to have been erroneously . . . collected . . . until a
claim for refund or credit has been duly filed with the Secretary[.]” To be duly
filed, (i) the claim must be filed within the time limits set by 26 U.S.C. §
6511(a) 105 and (ii) the claim must “set forth in detail each ground upon which
a credit or refund is claimed and facts sufficient to apprise the Commissioner
of the exact basis thereof.” 106 A failure to comply with these requirements
requires threshold dismissal. 107
If a taxpayer fails to file a formal claim within the statutory time limits,
the taxpayer’s claim may still be preserved by the well-established informal
claim doctrine. 108 Under the informal claim doctrine, “an informal claim is
sufficient if it is filed within the statutory period, puts the IRS on notice that
the taxpayer believes an erroneous tax has been assessed, and describes the
tax and year with sufficient particularity to allow the IRS to undertake an
investigation.” 109 But even if the informal claim is timely, “the doctrine is
predicated on an expectation that these formal deficiencies will at some point
be corrected.” 110

This is because “[i]nformal claims have been likened to

pleadings, for which technical deficiencies can generally be corrected by

105

1972).

See, Alexander Proudfoot Co. v. United States, 454 F.2d 1379, 1382 n.6 (Ct. Cl.

26 C.F.R. § 301.6402–2(b)(1).
See United States v. Clintwood Elkhorn Mining Co., 553 U.S. 1, 5–8 (2008); United
States v. Dalm, 494 U.S. 596 (1990).
108 See PALA, Inc. Employees Profit Sharing Plan and Trust Agreement v. United
States, 234 F.3d 873, 877 (5th Cir. 2000) (“While its theoretical underpinnings remain
shrouded in some obscurity, the informal claim doctrine has received the endorsement of the
Supreme Court.” (citing United States v. Kales, 314 U.S. 186, 194 (1941))).
109 Id. (citing Kales, 314 U.S. at 194–95).
110 Id. at 879.
106
107

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amendment so as to relate back to the original date of filing suit.” 111
Importantly, where courts have applied the informal claim doctrine, “the
taxpayers followed their informal submissions with proper formal claims
before initiating litigation.” 112 Thus, a taxpayer’s “subsequent failure to file a
formal claim bar[s] the court from exercising any jurisdiction over the
claim.” 113
Although the informal claims that BNSF filed for the employee tax paid
on moving-expense benefits in 1996 and 1997 may satisfy the informal claims
doctrine, it is undisputed that BNSF failed to perfect those claims prior to filing
the present suit. Accordingly, BNSF’s refund claims for those years must be
dismissed.
B.
We next turn to the merits. The parties agree that certain moving
expenses are properly excluded under § 3231(e)(5), 114 which provides that
benefits excludable under § 132 115 are excluded from RRTA compensation.
BNSF argues that moving expenses not excludable under § 3231(e)(5) are
properly excluded under § 3231(e)(1)(iii). Section 3231(e)(1)(iii) provides, in
pertinent part, that:
[Compensation] does not include . . . an amount paid
specifically—either as an advance, as reimbursement
or allowance—for travelling or other bona fide and
necessary expenses incurred or reasonably expected to
be incurred in the business of the employer[.]

Id.
Green-Thapedi v. United States, 549 F.3d 530, 533 (7th Cir. 2008).
113 Id.; see also, PALA, 234 F.3d at 877.
114 Compensation “[s]hall not include any benefit provided to or on behalf of an
employee if at the time such benefit is provided it is reasonable to believe that the employee
will be able to exclude such benefit from income under [§ 132.]” 26 U.S.C. § 3231(e)(5).
115 “[G]ross income shall not include any fringe benefit which qualifies as a . . .
qualified moving expense reimbursement.” 26 U.S.C. § 132.
111
112

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BNSF explains that those moving expenses not excluded under § 3231(e)(5)
should be excluded under § 3231(e)(1)(iii) because they were bona fide and
necessary expenses incurred in its business. BNSF states that these expenses
were paid, not as compensation to employees, but as a means of retaining
skilled and knowledgeable workers.
The district court agreed, holding that “BNSF has satisfied its summary
judgment burden to establish that the relocation benefits in question were
necessary to the business of BNSF . . . and were reasonably expected by them
to be incurred.” 116 The district court explained that there was “no suggestion
that any of those relocation benefits were not benefits actually or in reality
provided for the employees in connection with employee relocations required
by the business of the employer.” 117
The Government appeals this decision, arguing that because the RRTA
provides a specific exclusion from moving expenses in § 3231(e)(5), it is not
appropriate to include such expenses under the more general exclusion found
in § 3231(e)(1)(iii). Additionally, the Government explains that such a broad
reading of § 3231(e)(1)(iii) would render the narrower exception under §
3231(e)(5) superfluous.
We agree, informed by two statutory interpretation canons: the specificgeneral canon and the rule against superfluities. The specific-general canon
applies where there is a specific statutory provision that would be subsumed
by a general statutory provision. 118 Here, § 3231(e)(5) provides a specific
BNSF Ry. Co. v. United States, 904 F. Supp. 2d 604, 617 (N.D. Tex. 2012).
Id. at 616.
118 See, e.g., Hinck v. United States, 550 U.S. 501, 506 (2007) (describing the “wellestablished principle” that “a precisely drawn, detailed statute preempts more general
remedies” (internal quotation marks and citations omitted)); EC Term of Years Trust v.
United States, 550 U.S. 429, 433 (2007) (same); Radzanower v. Touche Ross & Co., 426 U.S.
148, 153 (1976) (“Where there is no clear intention otherwise, a specific statute will not be
controlled or nullified by a general one, regardless of the priority of enactment.” (quoting
Morton v. Mancari, 417 U.S. 535, 550-51 (1974))).
116
117

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exclusion for certain moving expenses, while § 3231(e)(1)(iii) provides a
broader exclusion for travelling expenses and bona fide and necessary business
expenses. Although § 3231(e)(1)(iii) could be read to include moving expenses,
such a reading would subsume the specific exclusion for moving expenses;
indeed, such a broad reading would subsume almost all the specific exclusions
found in § 3231(e). For example, § 3231(e)(5) also excludes certain employee
achievement awards. 119 If a rail carrier justifies an employee achievement
award as bona fide and necessary to recruit and retain well-qualified
employees in a competitive industry, then under the broad interpretation
offered by BNSF, and accepted by the district court, such expenses would
already be excluded under § 3231(e)(1)(iii). A similar problem arises under the
rule against superfluities, 120 as the broad interpretation of § 3231(e)(1)(iii)
renders virtually every exception in § 3231(e) inoperative.
We conclude that a more reasonable interpretation of § 3231(e)(1)(iii)
permits exclusion of payments to employees for traveling expenses and bona
fide and reasonable expenses related to travel, an interpretation harmonizing
§ 3231(e)(1))(iii) and § 3231(e)(5) as required by the specific-general canon and
the rule against superfluities. To be sure, BNSF argues that the provisions
can be harmonized under the broad interpretation by understanding §
3231(e)(5) to exclude items that benefit the employee, while understanding §
3231(e)(1)(iii) to exclude items that benefit the employer. Well stated, but the
argument fails to persuade, as even such an understanding does not address a
broad interpretation of § 3231(e)(1)(iii) rendering the remaining § 3231(e)
exceptions inoperative.

Section 3231(e)(5) excludes benefits reasonably excluded from income under § 74(c),
which is an “[e]xception for certain employee achievement awards.”
120 See, e.g., Colautti v. Franklin, 439 U.S. 379, 392 (1979) (a cardinal rule of statutory
construction is that “a statute should be interpreted so as not to render one part inoperative”).
119

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C.
BNSF argues that even if the disputed moving expenses are not properly
excluded under § 3231(e)(1)(iii), some of the disputed moving-expenses do not
qualify as “compensation” under the RRTA, because they are provided as inkind benefits. The district court did not address this argument, as it concluded
that all of the moving expenses were properly excluded.
A review of the record makes clear that these disputed moving-expense
benefits were paid in various ways, including: direct payment to the service
provider, advances to the employee, reimbursements to the employee, and
allowances to the employee. A determination will need to be made on an
expense by expense basis as to whether the benefit qualifies as “compensation”
under the RRTA.
On remand, the district court should parse the disputed moving expenses
to determine (i) whether each disputed moving expense qualifies as
“compensation” as explicated in Part III of this opinion, and (ii) whether each
disputed moving expense may be properly excluded as a traveling expense, or
a bona fide and reasonable expense related to travel.
V.
For these reasons we REVERSE the district court and REMAND for
further proceedings consistent with this opinion.

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